The method described in the U.S. Pat. No. 6,269,361 can be burdensome to manage for an advertiser. In particular, advertisers want to maintain favorable positions in the search results (so as to obtain a high volume of qualified traffic) at a favorable price. The system described in U.S. Pat. No. 6,269,361 provides no ready means to do that. Advertisers can resort to frequent inspection of their ranking on search terms that are important to them, for example by performing a search on www.overture.com. When they observe a change as a consequence of competing advertisers' bidding activities, they can log in to the pay for placement website and change their bids manually in response. In the case where they have been outbid for a position they want to retain, they can increase their bid to retake the position if the required cost per click (“CPC”), which is equal to the amount of their bid, is one they are willing to pay. In the case where the bid of the listing ranked below theirs has decreased, some advertisers may wish to lower their bid to reduce the amount they pay while still maintaining their position in the results set.
There are many other tasks that a large advertiser, or an advertising agency acting on behalf of a large advertiser, must perform. Large advertisers usually manage advertising “flights.” A flight is typically concerned with a business activity promoting a particular set of products over some specific time interval. A flight typically has a budget, flight duration, and business objective, e.g., signing up 10,000 new credit card customers.
Creating a flight typically involves choosing a media outlet (TV, radio, print, online, etc.), and signing a contract that specifies the campaign (e.g., number of TV spots, their length, time of airing, and the markets in which they will be broadcast), customer exposure (e.g., number of viewers reached), and the cost. For online cost per impression (“CPM”) markets, this typically involves identifying the web pages on which the banner ads will run, their frequency, the expected number of impressions over the flight, and the CPM cost. Once the contract terms have been settled on, there is not much work that is required by an advertiser to manage a flight, other than getting periodic reports on customer exposure.
It requires considerably more effort for an advertiser to manage flight in a CPC marketplace. The input parameter to flight management in a CPC marketplace are: 1) the flight duration (start and end dates and times), 2) the flight budget, 3) the set of listings to be used in the CPC marketplace (each listing has a term, title, description, and URL), and 4) the maximum average CPC for the listings (any higher CPC will result in a loss to the advertiser).
There are other inputs that depend on the CPC marketplace: 1) the bids for all ranks for the terms of the listings (e.g., it takes $4.43 to be at rank 3 for the term “web hosting”), and 2) the number of clicks at every rank of every term (e.g., the term “travel” at rank 2 has 1800 clicks/day).
The goals of flight management in a CPC marketplace are to: 1) spend the budget evenly over the flight, 2) spend the budget exactly by the end of the flight (or as close to it as possible), 3) ensure that the average bid for the selected listings is less than the maximum average CPC, 4) ensure that the advertiser profit is maximized. This means that for the fixed flight budget the advertiser receives the maximum possible clicks. The advertiser will receive the maximum number of clicks if the average CPC for all the listings is the lowest. Since the flight budget is fixed, having the maximum possible clicks is equivalent to maximizing the advertiser ROI.
Managing a flight in a CPC marketplace requires: 1) selecting the listings to bid on 2) selecting the bid amount for each selected listing (which determines the rank of every listing at the current time), and 3) periodically re-evaluating the bids to make sure the flight is still on track. Spending can go over or under the projections in the middle of a flight because of the dynamics of the CPC marketplace.
A CPC marketplace requires considerably more effort from an advertiser to manage a flight compared to other alternatives (TV, radio, print, other online, etc.) This is because: 1) the advertiser must generate a large number of listings, 2) the advertiser must determine the maximum CPC to remain profitable, 3) the advertiser must determine how to maximize profit by selecting the optimal bids for every listing, and 4) the advertiser must continually monitor and adjust the bids throughout the flight—all of which requires considerable effort. In some cases this can take multiple employees working full-time. The next few paragraphs briefly describe these difficulties.
An advertiser must generate a large set of listings (this can be in the hundreds). For each listing the advertiser must select a term, title, description, and URL. For example, a listing may have the term “LCD Projector”, the title “Your Super Source for LCD Projectors”, the description “Infocus Proxima Sanyo Toshiba, Panasonic Hitachi. Incredible deals on the best in computer projection with the best support in the business”, and a URL pointing to the advertiser's web site.
This can be time consuming, as each listing typically requires a manual review process by the CPC marketplace operator to ensure that the title and description accurately reflect the destination URL and that the title and description are relevant to the term of the listing.
The advertiser must determine the maximum amount to bid on the listings, in order to ensure that there will not be a loss. The amount paid to transfer a searcher to an advertiser's web site must be less than the expected profit/click. This requires computing the conversion rate for all possible actions-computing the probability that a searcher will perform each of the possible actions once he is transferred to the advertiser's web site. The possible actions can include registering, buying an item, applying for a loan, etc. The conversion rates for the various actions are combined with the average profit/action to compute the expected profit/click.
For example, if 1% of the searchers transferred to an advertiser's web site buy a digital camera, which results in an average profit to the advertiser of $100, then the maximum CPC for the listing is $1.00 (anything higher will result in a loss).
In addition, an advertiser must set the CPC for every listing in order to maximize profit. A higher CPC for a listing results in a better rank, which generally leads to more clicks, but the average cost/click goes up (due to the higher CPC). The total profit is the product of 1) the number of clicks and 2) the average profit/click minus the average cost/click.
A higher CPC may or may not result in higher profit. In general, the total profit can go up or down with changes in rank. The following example shows the non-monotonic behavior of the total profit with rank for a single listing. The advertiser has an average profit/click of $4.90. Bidding to be at rank 6 results in the maximum profit to the advertiser, when budget for the listings is greater than or equal to $46. On the other hand, if budget limit is $20, then the optimal profit is at rank 8, since that rank has the highest profit while still coming under the budget.
Rank# ClicksCPCProfit/ClickTotal ProfitTraffic Cost118$4.90$4.90$0.00$88.20217$4.80$4.90$1.70$81.60316$4.79$4.90$1.76$76.64415$4.78$4.90$1.80$71.70512$4.70$4.90$2.40$56.40610$4.60$4.90$3.00$46.0075$4.40$4.90$2.50$22.0084$4.30$4.90$2.40$17.2093$4.20$4.90$2.10$12.60
Figuring out the optimal bid for a listing is a trial and error process, if the marketplace operator does not publicize the average number of clicks as a function of rank for every term. In this example, the advertiser may start at rank 3, then try rank 4, which results in an increase in total profit, continue to examine rank 5, etc. Another problem is that finding a local maximum may miss the rank with optimal profit—rank 6 may have higher profit than its neighbors, but it is possible that rank 10 is better than rank 6.
To complicate matters, the conversion rate for different listings may not be the same. For example, a listing with the term “auto” may have 1% of the searchers buying information about the dealer costs for a car, while for a listing with the term “car” this may be 1.5%. This difference may be a function of the term of the listing, or its title, description, or the web page pointed to by the URL. Also, the conversion rates for a single listing may depend on the rank at which the listing is displayed. For example, it could be that when the listing is displayed at rank one 2% of the searchers buy the product, while if the listing is at rank five only 1% of the searchers buy the product.
The advertiser must manage the listings on a regular basis. This is to ensure that the budget is spent evenly or unevenly as desired, and that the entire budget is spent by the end of the flight. Spending the entire budget before the end of the flight can result in misallocation of resources—too many customers followed by none—and not spending the entire budget can result in missed revenue opportunities.
An advertiser must make an initial estimate of the optimal bids for all listings, and then continually monitor these to ensure that the flight is on track. There are many reasons why the bids may need to be modified over time. The initial estimates of the number of clicks at different ranks for every listing may be incorrect, the initial estimates of the conversion rates may be incorrect or the conversion rates may change over time. For example the listings may have relevance to a particular date (e.g., Father's Day), which has just passed.
In addition, due to the dynamics of the marketplace, the number of clicks for every rank of every term can change. For example, the listing with the term “auto” may have of bid of $1.43 and be at rank 3. Later another advertiser enters the market with a bid of $1.44 to displace the listing at rank 3 to rank 4. At rank 4 the “auto” listing will have fewer clicks-the cost/click for the term “auto” has just gone up in the marketplace. Other changes may be caused by advertisers leaving the marketplace, existing advertisers increasing/decreasing their bids, and the marketplace operator increasing/decreasing the number of searchers performing search (e.g., by adding or dropping affiliates). The dynamics of the CPC marketplace may result in these changes at any time.
There are other marketplace conditions that advertisers must keep track of in order to maximize profit. These include checking if the bid of a listing is too high for its current rank. For example, an advertiser A1 may set the CPC of a listing to $0.50 for the listing to be at rank 2—advertiser A2 is at rank 3 with a CPC of $0.49. A few hours later, A2 changes the CPC of his listing to $0.45, while still remaining at rank 3. Advertiser A1 can now reduce the CPC of his listing from $0.50 to $0.46, while still maintaining the listing at rank 2.
The previous examples illustrate the various actions that advertisers must perform manually to manage their flights. Some advertisers do these tasks several times a day. Some advertisers have a plurality of employees dedicated to the management of their participation in a pay for placement marketplace, monitoring the positions of their listings and adjusting their bids, managing their budget, etc.
The manual process of polling the status of listings, checking the competitors in the marketplace, and checking the account status is time consuming and wasteful. Therefore, a need exists for a method and apparatus for advertisers to manage their advertising flights more effectively.
There is a need to provide an automated flight management system for advertisers. Such a system would take as input the parameters of the advertising flight: the budget, duration, terms, maximum average CPC, conversion rates, and average profit/action for each term. The system would automatically set the CPC for every listing in order to maximize the advertiser's profit, and spend the budget over the flight as specified by the advertiser. The system would periodically recompute the CPC of listings, taking into account the historic performance of the flight to better optimize profit. The system would periodically generate reports on the performance of the automated flight management system and communicate these to the advertiser. The system should give advertisers the ability to customize the automated flight plan generated by the system.
If these inefficiencies are not addressed by a marketplace operator, then an economic incentive remains for advertisers to produce automated services of their own to interact with the account management systems of the marketplace operator to obtain the economic advantage available relative to the limited automated services provided by the marketplace operator. As a further consequence, such a situation provides economic incentive for third parties to produce automated services for advertisers, for a fee, or a cut of the alleged savings produced. This is already happening.